What are travel cash cards?

Transcription

1 What are travel cash cards? 1

2 What are travel cash cards? Prepaid travel cash cards have exploded in popularity in recent years, and it's not hard to understand why. There was a time, not so long ago, that arranging cash for foreign travel was a lengthy and complicated process. Travellers either needed to know how much money they need for their entire trip and exchange it before going, risking carrying large quantities of cash. Or, they could get Travellers Cheques to swap while abroad. Although Travellers Cheques were more secure than currency, convenient places to exchange them typically offered appalling rates to time-pressed tourists. The emergence of prepaid currency cards has changed the travel money landscape and tipped the balance of power in favour of the prepared traveller. What are travel cash cards? Travel cash cards are prepaid cards pre-loaded with foreign currency; also commonly referred to as 'foreign currency cards', 'prepaid travel cards', and 'travel currency cards.' Unlike credit cards they do not offer a credit line, so you can't run up debts with them. They are more like a debit card without a bank overdraft. So, they can be used to make purchases from merchants abroad (shops, restaurants, attractions, etc.), and they also enable you to withdraw foreign currency from ATMs overseas. Benefits of travel cash cards Early adopters of travel cash cards will have seen a vast improvement versus the traditional methods for obtaining foreign currency, detailed above. But, travel cash cards also have unique benefits that set them apart, even when compared with standard bank-issued debit cards. Security Foreign currency can be withdrawn from an ATM as and when you need it, so you never need to leave cash in your hotel room. 2

3 Just like standard debit cards, Chip & Pin technology protects travel cash cards, so your money is protected even if your card gets lost or stolen. And, although pin number compromise might see you lose the money you have loaded onto the card, your card is not directly linked to your current account, so you minimise potential losses. If you lose possession of your card, you just contact your card issuer, who will block the card. In some instances, card issuers can arrange for a new card to be dispatched to you overseas. But, even if they can't send you a new card abroad, your account balance remains unchanged, and you can get another card on your return to the UK (usually for a fee). Availability Unlike credit cards, which require customers to pass a credit check (and meet other eligibility criteria), prepaid currency cards are freely available to any UK resident, over 18 years old, who can supply the required identification. Budgeting Since you can't get into debt on a prepaid currency card, you can ensure that you do not overspend while abroad. Some travel cash cards enable users to fix their foreign exchange rate at the time they transfer money onto the card. Although this means you might lose out if the pound strengthens against other currencies, it does mean that you can avoid losing out if the pound falls in value. It also means that you can budget for your holiday more effectively since you know before you go how much spending money you will have. Reduced fees When you use a standard debit or credit card abroad, you are usually charged a non-sterling transaction fee of around 3%, meaning cash withdrawals and purchases abroad cost 3% more. Many travel cash cards enable their user to escape these charges because the transactions can be completed in the local currency. 3

4 Disadvantages of travel cash cards Despite the advantages, travel cash cards are not without fault, or considerations that should be fully understood before you apply. Exchange rates Unlike credit card and debit cards which use their payment processors daily exchange rates, most travel cash cards use their own foreign exchange rates. Although these are not necessarily prohibitive, they are often poorer than some available rates (and they are at liberty to change these whenever they want). To a degree, the poorer exchange rates are offset by the fact that the customers don't tend to pay the non-sterling transaction fee. But, you should be aware that when suppliers claim no commission is charged on foreign exchange, that the exchange rate itself might not be great. Fees & charges As with all prepaid cards, which do not make money from charging interest, travel prepaid cards charge fees associated with particular actions. These tend to include transaction fees and ATM fees, but many also charge application fees, annual fees, and/or inactivity fees (applied on a monthly basis if the card is not used for a prolonged period). Balance security Prepaid cards are not covered by the FSCS (Financial Services Compensation Scheme) as bank account deposits are, which is a potential risk. Many operators ring-fence client money within a separate account, so that it is protected if they become insolvent, but even this does not offer the protection that your money gains from the FSCS. What is the best prepaid travel card? The market for prepaid travel cards has grown immensely over the past few years. As such, there are numerous options available for people wanting a currency card. Some cards are operated by familiar brands, including big tour operators, while others are niche fin-tech businesses, using the power of peer-to-peer trading to 4

5 advantage their customers. Some cards offer customers preferential rates for one particular currency, while others offer their users the ability to transact in multiple currencies using a single card. Because of the choice available, and the different strengths and weaknesses cards have in particular situations there is no one 'best prepaid travel card'. There can only be the best card for you and your travel plans. To help you find this, we have prepared a comparison table which is dedicated to travel cash cards so that you can compare products on a like-for-like basis, without the usual marketing distractions. 5